EQBank T5 slip Box 13 for TY2019 includes interest credited on 2020-Jan-1st | Income tax filing | Discussion forum

pcs said
Hi, as per Topic name above ...

I have noticed that the total in Box 13 on my EQBank T5 slip for TY2019 includes an interest amount which was credited to my account on 2020-Jan-1st.

This is different from other banks' practice, where to date I have always seen interest credited Jan 1 of TYn+1 being reported on the T5 slip for TYn+1.

Can anyone comment whether EQ's inclusion of 2020-Jan-1st interest in TY2019 is
(a) acceptable under the various laws and regulations ?
(b) NOT acceptable (therefore a mistake on EQB's part which needs to be corrected before I can file TY2019) ?
(c) a gray area which may (or may not) cause a problem down the road ?

Thanks in advance for any insights.  

I noticed that as well, @pcs, and I wasn't happy about it.

Coast Capital Savings Federal Credit Union does something similar and includes interest from December of the previous year through November 30 of the current year. In short, December's interest is counted on the January of the following year despite being paid December 31, 2020.

EQ Bank is doing something similar whereby the interest paid in January except it's for the December of the previous year interest.

It's frustrating, I know, but I suspect we have no legal leg to stand on. In short, I suspect it's probably (d) acceptable, but non-standard practice. 🙁

Cheers,
Doug

The reply doesn't explain why they are holding back the interest for an extra day, although that may not have been the question you asked.

pcs said

Yes, I had noticed that EQ's crediting of interest had "slipped" from last-of-month on Sep-30th to 1st-of-month on Nov-1st. …

Was the crediting of interest actually changed or was it just its presentation on the statements?

If EQ Bank calculates the October interest payment on the closing balances of October 1 to October 31, then the interest payment could not have been credited on October 31. October 31 had already closed for the day. So, the October interest payment was effectively credited on November 1.

If the October interest was somehow credited on October 31, then it would have started earning interest on October 31. Did anyone notice a bit of extra interest in the subsequent November interest payment?

It seemed to me that the end-of-the-month date of the interest payment was really a kludge to get it to print in the monthly statement for the same month the interest was for.

The interest payment could not have been credited on the last day of the month. That would affect the closing balance of that last day of the month which is used to calculate the interest payment itself!

If the interest payment was not credited before the daily closing balance of the last day of the month, then the payment must have been credited afterwards, the next day.

I don't think there was any advantage to EQ Bank in removing the kludge. One was not able to access the interest payment until after the close of the last day of the month. I don't think EQ Bank paid interest on that interest payment anyways until the next day.

pcs said
…
No comment from them so far about why the crediting date changed at all.
However, "according to my calculations" :
Over the 15 months span from 2019-Jan-1st to 2020-Apr-1st the interest credited by EQ matches my expectations +/-0.4 cent or better every month with two exceptions:

- on 2019-Sep-30th they credited one extra day's interest, more than expected
- on 2019-Nov-1st they credited one less day's interest than expected

… This seems like an artifact of the change in crediting date,…

I checked and do not see that with my interest payments.

My 2019-Sep-30 interest payment matches expected 2.3% interest for Sep-01 to Sep-30 within 0.3¢.

My 2019-Nov-01 interest payment matches expected 2.3% interest for Oct-01 to Oct-31 within 0.01¢!

Three decimal places is not quite enough.

With three decimal places, the rounding error of the interest each day can be up to ±$0.0005. The cumulative error in a month could be up to

31 x ±$0.0005 = ±$0.0155 = ±1.55¢

Need at least four decimal places to ensure the cumulative error is under $0.00155.

I suspect EQ Bank made the change to simplify their software. Instead of having a special October 31 credit for interest that isn't really part of the October 31 closing balance and doesn't earn interest until November 1, they switched to an ordinary November 1 credit for the interest that behaves as desired for closing balance and interest calculations.

Perhaps that's why LBC Digital and Simplii Financial do what they do. They kept an October 31 interest payment. But, the October 31 interest payment is the interest from September 30 to October 30 instead of October 1 to October 31.

Are you sure your calculations have the correct periods?

The September 30 interest payment should be for September 1 to 30.

But, the November 1 interest payment should be for October 1 to 31.

My October 1 closing balance is significantly different from my November 1 closing balance. So, I know the November 1 payment is definitely not for October 2 to November 1.

This looks like is a grey area in taxation.

Income Tax Act 12(1)(c) says any interest "received or receivable" in the year is taxable in that year:

Interest

(c) subject to subsections (3) and (4.1), any amount received or receivable by the taxpayer in the year (depending on the method regularly followed by the taxpayer in computing the taxpayer’s income) as, on account of, in lieu of payment of or in satisfaction of, interest to the extent that the interest was not included in computing the taxpayer’s income for a preceding taxation year;

CRA's interepretation in old Interpretation Bulletin IT-396R is that "receivable" means "when there is a clear legal right to receive it" which may not be necessarily when the taxpayer actually received the money in hand:

Receivable Method

4. Interest is receivable by a taxpayer when there is a clear legal right to receive it. To illustrate, assume that a taxpayer purchased a $1,000 bond on its issue date of April 1, 1980, bearing interest at 9% payable by semi-annual coupon on April 1 and October 1. On October 1, 1980, interest in the amount of $45 would be receivable by the taxpayer, since that is the amount which is legally payable on that day and would be the amount to be reported as income in 1980 under the receivable method even though the October 1st coupon was not negotiated until 1981 or a subsequent year. …

A possible argument is that the interest for the month of December became "receivable" December 31 by closing time of the bank and is therefore taxable in that year.

I guess it doesn't matter that the interest was posted to the account later that night, at perhaps 11:30 pm (December 31) or 2 am (January 1), long after the bank had closed for the day and there was no way the taxpayer could actually get his/her hand on the interest money until next year.

pcs said
FYI : further discussion specifically about interest dates is in a new thread under EQ Bank.  

I purchased a 5 year GIC on Jan 1, 2020. I assumed the interest payment date would be Jan 1, 2021. On my FI account it shows Dec 31, 2020. It looks like Leap Year/statutory holiday changes payment date. Having fun.